Poland: New tax calculation method for discount

05.06.2014

Effective

1 July 2014

the weighted average price paid on the primary market auction will no longer substitute the actual purchase price (if not submitted by customers on behalf of final beneficial owners) for the calculation of the discount price on which tax must be applied.

Background

Bank Handlowy w Warszawie SA (Bank Handlowy), our depository in Poland acting as withholding tax agent, has decided to change the current process of the calculation of discount on T-bills and T-bonds.

At redemption of such securities, the submission of the purchase price becomes mandatory and will no longer be replaced by the weighted average price paid in the primary market auction.

If no actual purchase price is submitted by customers on behalf of the final beneficial owners within the prescribed deadlines, Bank Handlowy will apply the appropriate tax rate on the whole redemption amount.

Impact on customers

Based on the changes decided upon by Bank Handlowy, customers of Clearstream Banking1 should take into consideration the following two steps:

1. Submission of purchase price;
2. Tax relief at source.

Submission of purchase price

To calculate the correct discount price, customers must provide the purchase price within the deadlines listed below. The discount price will equal the redemption price (usually the nominal value) minus the purchase price.

If the purchase price is higher than the nominal/redemption value, no tax is applied to this amount but the value of the interest paid, which is subject to withholding tax, is also not reduced.

For customers that are unable to provide the purchase price, Bank Handlowy will assume that the purchase price is equal to zero and, as a consequence, the entire redemption amount will be taxed at an applicable withholding tax rate.

Important: Beneficial owners that are eligible and apply for tax exemption do not have to provide the purchase price.

Deadline for submission

In order to apply the taxation on the correct discount price and not on the entire redemption amount, customers must provide the purchase price via SWIFT MT599 free-format message at the latest, two business days before the respective redemption date by 10:00 CET.

Tax relief at source

We take this opportunity to summarise the withholding tax process for T-bills and T-bonds.

To apply for tax relief at source, customers must submit the required certification on behalf of the following types of eligible beneficial owner:

  • Those qualifying for a reduced rate of withholding tax in accordance with the Double Taxation Treaty (DTT) between their country of residence and Poland.
  • Banking entities whose fiscal residence is in Austria, Belgium, Finland, Germany, Ireland, the Netherlands, Norway, Qatar or the United Kingdom: the DTTs signed by Poland with these countries (except Belgium, where the DTT states that tax exemption cannot be applied to securities issued in bearer form) grant exemption from withholding tax to banking entities.
  • Eligible investment and pension funds resident in European Union/European Economic Area (EU/EEA) countries: a tax exemption is available if the eligibility criteria are met.
  • Central banks: a tax exemption is available if granted by the DTT signed between Poland and the central bank’s country of residence.
  • Supranational/international organisations: there are no particular Polish regulations granting tax exemption for supranational or international organisations. However, agencies like the UN, EBRD and NATO, where Poland is a member, are exempt from taxation in Poland.
  • Legal entities resident in Poland for tax purposes are paid gross without any deduction of tax. Such beneficial owners are under the obligation to declare their income and pay their tax directly to the Polish Tax Authorities.
  • Individuals resident in Poland for tax purposes may obtain the 19% reduced tax rate.
  • Individuals not resident in Poland and not eligible to benefit from a DTT reduced tax rate may also obtain the 19% reduced tax rate.

Note: Beneficial owners that are legal entities not resident in Poland and not eligible to benefit from a DTT reduced tax rate are taxed at the maximum rate (currently, 20%).

Eligibility criteria for EU/EEA Funds

According to Polish domestic legislation and provided that the following criteria are met, tax exemption is available as indicated.

EU/EEA investment funds:

  • The investment fund is taxed in its home country on all income received.
  • The investment fund is collectively investing (money collected) into securities, money market instruments and other property rights (by offering participation units) and it is the only business it does.
  • The investment fund conducts its operation based on the permit received from the authorities relevant for its seat or based on a notification submitted to such authorities (in cases of specific kinds of closed-ended funds) and it is subject to the authorities’ supervision.
  • The investment fund has an appointed custodian bank safekeeping its securities.
  • The investment fund is managed by entities whose activity is based on authorisation from the competent financial supervisory authority for the financial market in the country of their registered office.

EU/EEA pension funds:

  • The pension fund is taxed in its home country on all income received.
  • The pension fund conducts its operations based on the permit received from the authorities relevant for its registered office and it is subject to supervision by the said authorities.
  • The pension fund has an appointed custodian bank as registrar of its assets.
  • The sole business of the pension fund is the collection of money and their investment.
  • Distribution of funds for such pension fund participant is possible only when pension age is reached.

Securing the lower rate for individual beneficial owners

Based on information from the local market, in order to secure the standard refund applications filed with the Polish Tax Authorities by beneficial owners who are individuals, customers must disclose, before each redemption payment event, the total positions held by such beneficial owners.

N.B.: Individual beneficial owners cannot apply for a standard refund through Clearstream Banking for undisclosed positions taxed at source at 20% and should contact their tax advisors to apply directly to the Polish Tax Authorities.

Customers have one of the three following possibilities to instruct the positions held by individual beneficial owners: Standing instruction for 19% tax

Customers can open two accounts for holdings of debt securities, according to the type of beneficial owner:

  • Held exclusively by individual beneficial owners (“19% account”);
  • Held by legal/corporate entities (“20% account”).

For the 19% account, customers should submit the Standing Instruction for Domestic Debt Securities - Individual Beneficial Owner. The original, duly completed and signed, must be received by us by the relief at source deadline (at the latest, four business days before the first interest/redemption record date by 10:00 CET). Based on this Standing Instruction, we will apply, by default, the 19% tax rate on all undisclosed positions.

Note: On both accounts, the normal relief at source procedure applies for the certified positions. Split of positions

Customers that:

  • Maintain a single omnibus account;
  • Do not certify for a particular interest/redemption payment; and
  • Want to secure the standard refund applications;

can send a SWIFT MT599 free-format message that must include:

  • The total position held by individual beneficial owners; and
  • The total position held by legal/corporate entities.

Based on such instruction, we will apply the respective 19% and 20% standard rates as appropriate.

Note: The SWIFT message must be received by Clearstream Banking at the latest two business days before the respective redemption date by 10:00 CET. In the absence of the SWIFT message, we will apply, by default, the 20% standard rate for all undisclosed positions. Certified and undisclosed holdings

Customers that maintain a single omnibus account and, for a particular interest/redemption payment:

  • Have positions for which beneficial owners certify for relief at source;
  • Have undisclosed holdings; and
  • Want to secure the standard refund applications;

should ensure that, in the List of Beneficial Owners to be submitted to us in addition to the other required tax certification, the split of undisclosed holdings (included in the top of the List of Beneficial Owners) is completed.

Undisclosed beneficiary breakdown - legal status
* MANDATORY area for all undisclosed BOs
Beneficial Owner StatusSecurities holding
Legal person:0
Natural person:0
Total:0

If this table is not duly completed, we will apply, by default, the 20% standard rate for all undisclosed positions.

Documentation requirements

Documentation is required to obtain relief at source as follows:

Note: Forms are available from Tax Forms to use - Poland.

  • By all beneficial owners, regardless their residency and status, applying for relief at source:

    One-Time Certificate for Polish Securities
    The original, completed and duly signed by the customer and specifying, among other things, whether or not the customer is the sole beneficial owner of all the Polish securities held in the account, must be provided once before the first income/redemption payment; it remains valid until revoked. Any changes to any details must be communicated in a new One-Time Certificate.

    List of Beneficial Owners
    The List of Beneficial Owners indicates complete data of each beneficial owner, the applicable withholding tax rate, the common code or ISIN, the nominal amount or number of securities and the tax rate to be applied; it must be provided before each interest payment.

    Note: For beneficial owners that are Polish residents, no further documentation is required in order to obtain a tax exemption (Polish legal entities on interest/redemption, Polish funds on equities) or 19% tax rate (Polish individuals on interest/redemption).

  • In addition, by all non-resident beneficial owners applying for relief at source (except for beneficial owners that are supranational/international organisations):

    Certificate of Residence
    An original Certificate of Residence must be issued by the beneficial owner’s local tax authorities in the year for which it is to be used. It must include the beneficial owner’s full name and address and it remains valid until the end of the respective calendar year.

  • In addition, specific documentation must be submitted by the following final beneficial owners depending on their status and also on the type of security:

    • Beneficial owners that are banking entities resident in Austria, Belgium, Finland, Germany, Ireland, the Netherlands, Norway, Qatar and the United Kingdom qualifying for tax exemption on interest and redemption only

      Specific Statement for banking entities: The forms are specific per each impacted country. They must be issued in the year in which the applicable redemption takes place, duly notarised and apostilled in the beneficial owner’s country of residence and remain valid until the end of the respective calendar year.
    • Investment funds resident in EU/EEA countries and qualifying for the benefit of tax exemption on interest, dividends and redemption

      Investment Fund Statement: This specific form must be issued in the year in which the applicable redemption takes place, duly notarised and apostilled in the beneficial owner’s country of residence and remain valid until the end of the respective calendar year.
    • Pension funds resident in EU/EEA countries and qualifying for the benefit of tax exemption on interest, dividends and redemption

      Pension Fund Statement: This specific form must be issued in the year in which the applicable redemption takes place, duly notarised and apostilled in the beneficial owner’s country of residence and remain valid until the end of the respective calendar year.
    • EU investors qualifying for the benefit of tax exemption on dividends only

      Self-Certification: The original, completed and duly signed by the beneficial owner and specifying, among other things, that it holds for minimum 24 months continuously at least 10 % of the share capital distributed by a Polish Issuer. Furthermore, the beneficial owner acknowledges and accepts the responsibility to pay the due tax amounts to the Polish Tax Authorities in case the equities are sold before the end of the mandatory holding period.

      Additionally, further documentation may be required by the issuer to prove the eligibility for tax exemption granted by the Polish Act of Corporate Income Tax implementing the EU directive 2003/123/EC.
    • Supranational/international organisations qualifying for tax exemption on interest, dividends and redemption

      SWIFT MT599 /CreationOnline free-format message: By the certification deadline indicated above, the customer must send us a SWIFT MT599 or CreationOnline free-format message indicating that tax exemption is required for a supranational/international organisation and specifying the name of the entity. Based on this information and as there is no exhaustive list of eligible institutions in Poland, applications are treated on a case-by-case basis. The confirmation of eligibility must be obtained once from our Polish depository and remains valid for all future payments. For each impacted payment, the customer should mention in the last column of the List of Beneficial Owner the supranational/international status of the respective entity.

Note: All documents must be issued on company letterheaded paper (when applicable), stamped, signed and dated.

Deadline for relief at source

In order to benefit from relief at source on redemption from Polish T-bills and T-bonds, customers must ensure that we receive the requested documents by the following deadlines:

  • Original certificates: at the latest, four business days before the respective redemption date by 10:00 CET;
  • List of Beneficial Owners: at the latest, two business days before the respective redemption date by 10:00 CET.

Quick refund

A quick refund of withholding tax is available for beneficial owners eligible for tax relief if the required certification and/or purchase price has not been provided within the relief at source deadline.

The eligibility criteria and certification requirements are the same as for submission of purchase price and relief at source (see above).

Deadline for quick refund

  • Original certificates: at the latest, four business days before the last business day of the month when the interest was paid by 10:00 CET;
  • List of beneficial owners: at the latest, one business day before the last business day of the month when the interest was paid by 10:00 CET.

Receipt of quick refund amounts

The estimated time for receiving a quick refund is the first week of the month following the month in which the redemption was paid.

Note: The quick refund procedure is based on market practice and we will assist customers with quick refund applications but we can only remit to customers' accounts the amounts that we receive.

Standard refund

A standard refund of withholding tax is available for beneficial owners that are eligible for tax relief and not resident in Poland for tax purposes, if the required certification or/and purchase price has not been provided within the relief at source or quick refund deadlines.

Documentation requirements

In order to benefit from a standard refund of withholding tax on redemption from Polish T-bills or T-bonds, customers must ensure that we receive the following documents:

Note: Forms are available from Tax Forms to use - Poland.

  • Documents confirming purchase and purchase price:
    For recalculation of withholding tax by providing the purchase price, the Polish Tax Authorities request proof that the beneficial owner suffered the cost of acquiring the securities and confirmation of the respective cost (for example, deal trade confirmation, cash statement showing that client made a payment referring to purchase of securities).
  • Certificate of Residence:
    An original Certificate of Residence must be issued by the beneficial owner’s local tax authorities including the beneficial owner’s full name and address. The Certificate of Residence must cover the relevant payment date.
  • Declaration of not being engaged in a commercial activity in Poland:
    The Declaration of not being engaged in a commercial activity in Poland must be provided duly notarised and apostilled in the beneficial owner’s country of residence. It is valid for the payments covered by the years as completed by the beneficial owner in the first paragraph.
  • Power of Attorney from beneficial owner to Bank Handlowy w Warszawie SA:
    A Power of Attorney, completed and signed by the final beneficial owner and duly notarised and apostilled in the beneficial owner’s country of residence must be provided in order to authorise our depository to reclaim withholding tax on the customer's behalf. It must be submitted once and remains valid until revoked.
  • Credit Advice:
    Identifies redemption payment details including the security type, gross amount of payment, date of payment and amount of tax withheld. It is required from each intermediary financial institution between the beneficial owner and Clearstream Banking. For example, if the beneficial owner is the customer’s client, the Credit Advice (see model attached at the end of this announcement) from the customer to the beneficial owner must be provided along with the Credit Advice received by us. The Credit Advice must reconcile with the information in the Letter of Request for Reclaim.
  • Letter of Request for Reclaim:
    The Letter of Request to Clearstream Banking for Reclaim of Polish Withholding Tax authorises us to process the reclaim with the Polish Tax Authorities on the customer’s behalf. It must be provided to us, completed and duly signed by the customer, for each reclaim application.

In addition, depending on the status and residency of the final beneficial owner, one of the following documents must be submitted:

  • Specific Statement for banking entities:
    The forms are specific per each impacted country. They must cover the year in which the applicable redemption took place, duly notarised and apostilled in the beneficial owner’s country of residence.
  • Investment Fund Statement:
    This specific form must cover the year in which the applicable redemption took place, duly notarised and apostilled in the beneficial owner’s country of residence.
  • Pension Fund Statement:
    This specific form must cover the year in which the applicable redemption took place, duly notarised and apostilled in the beneficial owner’s country of residence.

Note: For the purposes of the tax procedure described above, the tax authority and/or the Polish issuers may, at their own discretion, request additional documentation to prove that the beneficial owner is indeed the beneficial owner of the securities and is eligible to obtain tax relief.

Deadline for standard refund

For redemption paid as of 1 January 2009, the withholding tax reclaim must be filed with the Polish Tax Authorities no later than five years from the end of the calendar year in which the relevant withholding tax was paid.

The deadline by which we must receive the documentation for a standard refund application is at the latest two months before the statutory deadline.

We will process all standard refund applications received after this deadline on a “best efforts” basis. However, in such cases, we will apply an extra charge and accept no responsibility for forms that have not reached the Polish Tax Authorities by the date considered to be the statute of limitations deadline.

Note: With respect to tax reclaims in general, customers are reminded that we accept no responsibility for their acceptance or non-acceptance by the tax authorities of the respective country. It is the customer’s responsibility to determine any entitlement to a refund of tax withheld and to complete the forms required correctly and calculate the amount due.

Receipt of standard refund amounts

The estimated time for receiving a standard refund is four months from the date on which the standard refund application was received by the Polish Tax Authorities, although this can vary depending on when the application was filed and the complexity of the information supplied in the reclaim form.

Translation of documentation

According to Polish legislation, all documentation must be officially translated into Polish. Furthermore, as for each relief at source, quick or standard refund application the original or notarised copy must be submitted to the Polish issuers or the Polish Tax Authorities, the copies of the certificates must be notarised in Poland. Our Polish depository will take care of the translation and notarisation and the fees will be deducted from the customer’s account as out-of-pocket charges.

Further information

For further information, customers may contact the Clearstream Banking Tax Help Desk on:

LuxembourgFrankfurtSingapore
Email:tax@clearstream.comtax@clearstream.comtax@clearstream.com
Telephone:+352-243-32835+49-(0) 69-2 11-1 3821+65-6597-1665
Fax:+352-243-632835+49-(0) 69-2 11-61 3821

or Clearstream Banking Client Services or their Relationship Officer.

------------------------------------------
1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).

As a registered customer, subscribe to our free email alerts service to receive immediate, daily and/or weekly notification of the latest customer publications on our website. Unsubscribe at any time; we respect your email privacy.